Companies Act • Official Statutory Text & Practice Guide
Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 2013
Section 278 of Companies Act: Corporate Governance & Statutory Compliance
Official Bare Act Text
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The order for the winding up of a company shall operate in favour of all the creditors and all contributories of the company as if it had been made out on the joint petition of creditors and contributories.
Statutory Defined Terms in this Section:(Click any term for official legal definition)
Section 278 of the Companies Act, 2013 establishes that an order for the winding up of a company operates universally in favour of all creditors and all contributories as a representative proceeding in rem, as if made upon their joint petition.
Universal Operation In Rem: The statutory order of winding up operates in favour of every creditor and contributory equally, transforming bilateral disputes into a collective representative statutory proceeding.
Extinguishment of Individual Execution: Prevents individual creditors from executing decrees against company assets or racing for preferential recovery, subjecting all claims to the statutory scheme of pari passu distribution.
Fictional Joint Petition Construct: By deeming the winding-up order to have been made upon the joint petition of all creditors and contributories, the section bars selective settlements that defeat the collective estate.
Key Landmark Precedents:
Governor General in Council v. Shiromani Sugar Mills Ltd., AIR 1946 FC 16: The Federal Court laid down that upon a winding up order taking effect, the assets of the company are converted into a statutory trust fund dedicated to the discharge of all liabilities pari passu under court supervision.
Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17: The Supreme Court reaffirmed that liquidation and winding-up orders operate in rem, extinguishing individual preferential pursuits to secure the orderly collective realization and distribution of corporate assets for all stakeholders.
Courtroom Practice & Strategic Litigation Guidance:
If an individual judgment-creditor seeks to attach company assets after the pronouncement of a winding up order, the liquidator or any co-creditor must invoke Section 278 before the executing civil court. Plead that the order operates in rem for the collective benefit of all creditors, mandating the unconditional stay and transmission of the execution to the liquidation forum.
Legal Commentary & Landmark Judgments: Section 278
Section 278 of the Companies Act, 2013 establishes that an order for the winding up of a company operates universally in favour of all creditors and all contributories as a representative proceeding in rem, as if made upon their joint petition.
If an individual judgment-creditor seeks to attach company assets after the pronouncement of a winding up order, the liquidator or any co-creditor must invoke Section 278 before the executing civil court. Plead that the order operates in rem for the collective benefit of all creditors, mandating the unconditional stay and transmission of the execution to the liquidation forum.